Among the 100 largest public pensions, a third have reduced their interestrate assumptions.

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That’s according to Milliman’s 2017 Public PensionFunding Study, which also finds that there’s a 79-basis-pointgap between the sponsor-reported discount rate andindependently-determined rate assumptions—indicating that furtherreductions are likely.

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Based on information that was reported by the plan sponsors at their last fiscal yearends—for most, June 30, 2016—the study finds that plan assets werestill showing the effects of market downturns in 2014–2015 and2015–2016.

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Total plan assets as of the last fiscal year ends stood at $3.19trillion, down from $3.24 trillion as of the prior fiscal year ends(generally June 30, 2015).

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But since the last fiscal year ends, market performance has beenstrong; estimated aggregate plan assets are up to $3.44 trillion asof June 30, 2017. The study estimates that the plans experienced amedian annualized return on assets of 11.49 percent in the periodbetween their fiscal year ends and June 30, 2017.

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When it comes to the aggregate funded ratio for the country’slargest public pension plans, as of June 30 of this year it’sestimated to be 70.7 percent; that’s up from 67.7 percent at theend of the plans’ latest reported fiscal years, usually June 30 of2016.

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Total pension liability at fiscal year ends for the 100 publicplans was an aggregate $4.72 trillion for more than 26 millionmembers; that’s estimated to have risen to $4.87 trillion as ofJune 30 of this year.

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However, Milliman’s analysis estimates that total liabilitiesfor these plans could be higher.

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The study recalibrated total pension liability for each plan,based on market consensus that long-term investment returns havebeen falling and using independently determined interest rateassumptions.

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For this study, “interest rate” indicates the assumptions plansponsors have chosen to determine their contribution amounts, while“discount rate” indicates the rate used to measure liabilities forfinancial reporting purposes.

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In aggregate, Milliman estimates the recalibrated TPL for these100 plans is $4.98 trillion as of their fiscal year-ends; that’s$260 billion higher than reported by sponsors.

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“"In this low-interest-rate environment, market expectations oninvestment returns have been falling faster than plan sponsors canreassess rates,” Becky Sielman, author of the study, says in thereport, adding, “And the gap that creates between sponsor-reportedand our recalibrated market-based liabilities is widening, which isall the more reason plans should continue to monitor emerginginvestment return expectations and adjust their assumptions asneeded.”

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Plan sponsors report a median discount rate of 7.50 percent,with a spread of 6.50–8.50 percent, but Milliman’s assessment ofthe expected real return for each plan’s investments puts themedian rate at 6.71 percent.

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That’s lower than all but six of the 100 sponsor-reported rates.According to the analysis, despite the fact that a third of theplans lowered their discount rates since the last study, this gapbetween sponsor-reported and independently determined ratescontinues to widen, indicating further reductions in discount rateswill be likely in the coming years

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